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US Consumers Warm Up to Luxury Again

Last year was a glamorous year for luxury stocks. Customers flocked back to luxury boutiques to stock up on watches, jewellery and leather accessories as they left behind the frugal years of the recession.

CNBC

Revenues at the world’s top industry players LVMH, Richemont and Swatch Group reached record levels, driven by buoyant Asian buying.

In 2011 though, the industry is off to a choppy start.

The unrest in the Middle East and North Africa, the disaster in Japan, record high commodity prices and the strength of the Swiss franc threaten to take the shine off some of those stocks.

As the world grapples with the longer term impact of those headwinds, the leading luxury watch and jewellery makers gather in the Swiss town of Basel for the industry's most important show of the year.After all, an estimated 30-40 percent of annual orders are placed during these two weeks in Basel.

"The mood at Baselworld will likely be subdued in the light of the turmoil in the Middle East and a tottering Japan," Jon Cox, head of research from Kepler Capital Markets, said.

But he added that he sees a structural shift in the market, which is "caused by the re-emergence of China and the love affair the Chinese have with Swiss watches."

China and Hong Kong's share in the luxury watch and jewellery market already stands at around 30 percent and growth in China alone is forecast at 35 percent in 2011 alone.

But there is one market, far away from Asia, which may surprise in 2011: the USA, according to Frederic de Narp, CEO and President of diamond giant Harry Winston, who said that US customers are splurging on exclusive engagement rings again.

Jon Cox from Kepler Capital Markets shares that view.

He expects the US market to grow by 8 percent this year, but he called this forecast conservative as retail sales of luxury watches ran at low double-digit levels over the past 12 months.

In the past fiscal year, the company reported a 53 percent growth in retail sales, beating its earlier estimate of 35-40 percent.

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